The Wall Street Mess Culprit (as we suspected) is SPECULATION
Posted by: in Your BusinessFirst, a definition: Speculation is the process of taking huge risks, gambling, with the hope of winning large.
Miranda Marquit wrote a brilliant blog post about CDS’s as the culprit behind the current financial mess. But these CDS’s (Credit Default Swaps) are just the car. The real culprit is SPECULATION. Here’s how it has played out:
The CDS’s allowed banks to make riskier loans and pass off those risks to someone else. From The Market: The idea, of course, [of the CDS’s] was to encourage more and more risky investment. And, of course, pump up Wall Street profits and grant for more speculation.(my emphasis).
As with any speculation, eventually it comes back to bite you. The collapse of the mortgage market and the resulting drop in mortgage values caused a “perfect storm” of a problem. And the house of cards has collapsed , the bubble of speculation has burst.
This isn’t the first time mass speculation backfired. From the Dutch Tulip Bubble in the 1500’s to the South Sea Bubble, to the Great Depression and the Crash of 1987, to the Dot Com Crash, humans have learned that speculation results in disaster.
Our economic structure has always recovered, and there’s no reason to believe it won’t settle down again. And for a while we’ll be cautious. Then a bunch of people will begin speculating again, and away we go…
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